Draft Model General Terms and Conditions

Transcription

1 Original Equipment Suppliers Association Draft Model General Terms and Conditions With Comments October 2011 The Original Equipment Suppliers Association

2 TABLE OF CONTENTS 1. The Contract 1.1 Offer and Acceptance Changes Other Changes Products and Services 2.1 Quantity Current-Model Service Requirements Past-Model Service Requirements Delivery 3.1 Packing and Shipment Delivery Schedules Inspection Taxes Payment Product Warranties 7.1 Seller s Warranties Non-Conforming Products Recalls Product Liability 8.1 Indemnification Procedure Compliance with Laws Intellectual Property Rights 10.1 Buyer s Intellectual Property Seller s Intellectual Property Infringement Property 11.1 Buyer s Property Seller s Property Term and Termination 12.1 Generally Long-Term Contracts Short-Term Contracts Property Orders Default 13.1 Events of Default Remedies Confidential Information Assignment and Subcontracting Excusable Non-Performance Labor Contracts Customs Insurance Dispute Resolution 20.1 Negotiation and Mediation Arbitration Litigation Miscellaneous 21.1 Advertising Audit Rights Electronic Communication Relationship of the Parties Waiver Entire Agreement Severability Interpretation Notices Governing Law These Draft Model General Terms and Conditions were designed for use in connection with the purchase and sale of automotive original equipment parts. OESA developed the Model Terms to promote a more collaborative approach to supplier-customer relationships. The goal is to increase cooperation, communication, and trust between buyers and sellers, eliminate ambiguities in responsibilities, reduce transaction costs, increase certainty, and ultimately increase the industry s competitiveness. The Model Terms should serve as a reference guide and educational tool for buyers and sellers, and may help form the basis for fair and balanced contracts. USE OF THE MODEL TERMS IS ENTIRELY VOLUNTARY. Price and other terms of sale are determined by the buyer and seller in every transaction, and the Model Terms and Conditions are not intended to affect that negotiating process. Buyers and sellers are always free to negotiate whatever terms or conditions they believe appropriate and are able to agree upon in the specific situation. Each buyer and seller should independently decide whether the Model Terms are appropriate for the company or transaction. Under no circumstances should buyers or sellers discuss with their competitors the specific terms and conditions they should adopt in particular negotiations, or agree collectively not to deal with a company refusing to adhere to the recommendations in this document or any other particular terms and conditions.

3 OESA DRAFT MODEL GENERAL TERMS AND CONDITIONS Introductory These General Terms and Conditions attempt to follow a more balanced approach to buyer-seller relations than many of the forms currently in use in the automotive industry, both at the OEM and supplier levels. The drafters considered the interests and needs of both buyers and sellers, and attempted to apply basic concepts of fairness and good faith dealing to navigate a course between the two. Where both parties had competing legitimate interests or needs, the drafters selected the alternate that appeared to represent the greater interest or need. There is, of course, no one "correct" approach that fits all situations and individuals may disagree about what constitutes "fairness" and "good faith. However, most would agree that the forms currently in use in the automotive industry are neither fair nor balanced. Rather they reflect the ability of the party with superior bargaining power, typically the buyer, to impose terms and conditions that provide maximum protection for that party and little, or no, protection for the other party. OESA believes that a more collaborative approach between buyers and sellers will pay long-term dividends to all parties in an increasingly global economy, and that a more balanced approach to contract terms and conditions is an important step in that direction. 1. The Contract. 1.1 Offer and Acceptance. Each purchase order Buyer issues ( Purchase Order ) is Buyer s offer to purchase the products ( Products ) and services ( Services ) identified in that Purchase Order. Seller will be deemed to have accepted a Purchase Order as issued (1) if Seller fails to object to it in writing within 10 business days after receipt and has begun or later begins performance under the Purchase Order, or (2) if Seller acknowledges in writing its acceptance of the Purchase Order. Upon acceptance, the Purchase Order together with these General Terms and Conditions and any other documents specifically incorporated in the Purchase Order or separately agreed to in writing, such as specifications, drawings, requirements of Buyer s customer, or quality requirements, will become a binding contract between Buyer and Seller (collectively, the Contract ). If Seller timely objects to a Purchase Order or proposes alternate or additional terms, the Purchase Order will become a Contract only if and when Buyer and Seller mutually agree in writing, even if Seller commences or has commenced performance under the Purchase Order. Specific terms and conditions on the Purchase Order and the other documents comprising the Contract will take priority over any inconsistent provision in these General Terms and Conditions. 1. Section 1.1 is intended to promote early identification and resolution of differences between the parties. It is incumbent on both parties to consider carefully the documents that comprise the Contract and the language contained in those documents (not just price and payment terms), to be sure that they accurately reflect the agreement between the parties. Most contract disputes arise because the parties skip this critical step. 2. Section 1.1 establishes the terms and documents that comprise the Contract between Buyer and Seller. Buyer's Purchase Order is the offer of a Contract. Included in that offer are any documents referenced in the offer as being part of the Contract, including these General Terms and Conditions. Suppliers should make sure that the reference to another document in the offer is specific enough to identify a particular document by date, release number, etc. Otherwise, Buyer may be free to argue that a later revision is part of the Contract. 3. All documents and agreements not specifically incorporated in the offer are excluded (see Section 21.6). This means that Seller's bid or quotation documents are not part of the offer unless specifically referenced in the Purchase Order. The same is true of any technology agreement, sourcing agreement, confidentiality agreement, or other document that predates the Purchase Order. Once incorporated in the Purchase Order (or printed on the Purchase Order itself, if space permits), these General Terms and Conditions will govern the relationship between Buyer and Seller unless the parties otherwise specify. 4. The offer contained in the Purchase Order may be accepted in one of two ways. First, the offer may be accepted by a written acceptance from Seller. Second, if there is no written acceptance, the offer will be deemed accepted if Seller begins performance or fails to object in writing within 10 days after receiving the Purchase Order, whichever is later. This formulation gives Seller the opportunity to raise an objection to the Purchase Order terms, even if it has already begun performance. However,

4 the time period is limited in order to promote certainty of contract, and Seller must review incoming Purchase Orders promptly if it wishes to preserve its right to object. 5. Timely objections to a Purchase Order (whether the objection seeks to eliminate or modify provisions in the Purchase Order or offers additional provisions or documents to the Contract) are treated as a counter-offer by Seller, which requires mutual written agreement by the parties in order to establish a Contract. In this respect it varies from the result in UCC Section 2-207, which generally would treat Seller's proposed additions or modifications as part of the Contract unless they are material or are objected to by Buyer. It also varies from the result in most current industry forms, which reject outof-hand any counter-offer by Seller. Continued performance by Seller after raising a timely objection does not waive that objection but does leave Seller at risk for work performed without a Contract. Similarly, Buyer is at risk that Seller may elect to withdraw without a Contract, leaving Buyer to try to find a replacement. Accordingly, both parties should be incented to take prompt action to resolve any differences. 6. These, or any other contract provision or legal rules governing acceptance, cannot eliminate uncertainty and risk when the parties have not actually agreed on the terms. If the parties have actually begun buying and selling goods and a dispute later arises about those transactions, there must be some terms that apply. There are a number of ways that a court might decide what the terms are, but none are likely to meet either party s understanding or expectation of the business deal. A Buyer and Seller that do business without actual agreement on the contract terms do so at their own risk. 1.2 Changes. Buyer may from time to time by notice to Seller make reasonable changes, within the scope of the Contract, to the drawings, specifications, materials, packaging, testing, quantity, time or method of delivery or shipment, or similar requirements prescribed in the Contract. At Seller s request with appropriate supporting documentation, the parties will agree upon an equitable adjustment to the Contract prices and times for performance as a result of Buyer s changes. Contract changes must be in writing signed by Buyer s authorized representative, and Buyer will not unreasonably withhold or delay consent to a Contract change proposed by Seller. Sections 1.2 and 21.6 govern changes to the Contract once the Contract has been formed. Under Section 1.2, Buyer may unilaterally impose changes, within the scope of the Contract, to drawings, specifications, and other Contract requirements listed, but Seller may request, and the parties are required to agree upon, appropriate modifications to the Contract prices and time for performance to reflect the changes imposed by Buyer. Seller may also request changes to the Contract, but they require Buyer's approval. All changes must be documented in writing. The differing treatment between the parties recognizes that Buyer must have the ability to make changes that are necessary to improve its products during the course of the Contract, while there is not generally a corresponding need by Seller to impose changes. Specific situations that might justify changes imposed by Seller (such as Seller's required use of costly materials that fluctuate greatly in price) would require separate provisions. Contract changes not covered by Section 1.2 require written approval by both parties see Section Other Changes. Except for the changes described in 1.2, neither party may make any changes to the Contract during its term (as described in 12.1) without the written agreement of Buyer and Seller s authorized representative. If the General Terms and Conditions change during the term of the Contract, those changes shall not apply during the term, even if the Buyer has issued a purchase order revision during the term, unless expressly agreed in writing by Buyer and Seller s authorized representative. The typical industry purchase order says, in substance, that the purchase order is subject to the issuer s then current standard terms and conditions. If a new or revised purchase order is issued (for example, to reflect changes made under Section 1.2) and the standard terms and conditions have been modified since the original purchase, those modified terms may significantly change the deal that had been agreed to. The drafters believe that it is unfair to change an existing contract merely by posting different terms to a website. Section 1.3 reflects that belief. 2. Products and Services. 2.1 Quantity. If quantities or delivery schedules are not specified in the Contract, they will be as reasonably determined by Buyer and stated in Buyer s firm releases issued to Seller from time to time. Whether quantities or delivery terms are reasonably determined shall take into account, without limitation: (i) any capacity limitations specified in the Contract or otherwise agreed to by Buyer and Seller in writing; (ii) unusual volume or timing fluctuations that are inconsistent with customary lead time requirements or any lead time requirements specified in the Contract or otherwise 2

5 agreed to by Buyer and Seller in writing. However, in all events, Seller shall use best efforts to meet Buyer s quantities and delivery schedules. Buyer may return over-shipments to Seller at Seller s expense. Unless otherwise specifically stated in the Contract, the Contract is not exclusive and Buyer may purchase similar products and services from third parties, subject to Section A contract that lacks a written quantity term is not enforceable under the statute of frauds, (with exceptions that do not change the basic point). Under the UCC, an obligation to purchase requirements is considered a quantity, so the typical industry contract that specifies requirements or the equivalent is enforceable. However, merely specifying blanket PO, per release, or the like might not be interpreted as a requirements obligation, and thus might not be sufficient to create an enforceable contract. These Model Terms do not themselves provide a quantity term. Instead, it assumes that the quantity term will be specified in the purchase order. It is essential that the quantity term be specified in the purchase order. 2. The industry typically uses blanket purchase orders which allow the buyer to specify quantities and delivery dates through releases. Section 2.1 defaults to Buyer's firm releases for quantities and delivery terms that are not specified in the Contract, so long as the releases are reasonable. Section 2.1 recognizes that releases may be unreasonable if they are inconsistent with capacity limitations, or lead time requirements. However, the reasonableness limitation must also take account of the industry reality that Buyer requirements often are unpredictable in timing and quantity and that except in unusual circumstances, the Seller is expected to meet release requirements. Although the reasonableness limitation is helpful in dealing with unusual situations, it is prudent to expressly include in the Contract specific Seller requirements regarding quantity and delivery, such as minimum notice requirements for orders or changes to orders, and minimum or maximum quantities in each order, based on Seller's capacity to produce Products and the limitations of available tooling and equipment. See also Section Current-Model Service Requirements. During the term of a Contract, Seller will make Products covered by the Contract available to Buyer for Buyer s current-model service requirements at the then-current production prices under the Contract plus any additional costs for special packaging, shipping and handling, and other related services. Section 2.2 provides for recovery of certain additional costs that Seller may incur to provide service parts during current model production. 2.3 Past-Model Service Requirements. If a Contract remains in effect at the end of the vehicle production program in which Products covered by the Contract are incorporated, Seller will also make those Products available to Buyer for Buyer s past-model service requirements for a period of 10 years after the end of the vehicle production program. The parties will negotiate in good faith the prices, quantities, and delivery terms for past-model service Products based on the availability and cost of needed materials, supplies, and skilled workers, the additional costs for equipment setup, packaging, shipping and handling, related services, and other relevant factors. Section 2.3 balances Buyer's legitimate interest in securing a continuing source of service parts after regular production has ended with Seller's legitimate interest in recovering any added costs to produce small quantities at irregular intervals, often long after regular production has ended. The obligation to provide pastmodel service parts applies only if Seller is still supplying products at the end of current model production. Occasionally, even added costs will be insufficient if needed parts or components are no longer available in the marketplace, or if the design of those parts or components has changed. In that situation, the parties will need to agree upon modified specifications for substitute parts or components. 3. Delivery. 3.1 Packing and Shipment. Buyer may specify the method of transportation and the type and number of packing slips and other documents to be provided with each shipment. Seller will pack and ship Products in accordance with Buyer s instructions, including labeling and hazardous materials instructions. If Buyer has not provided packing or shipping instructions, Seller will pack and ship Products in accordance with sound commercial practices. If Seller is required to use Buyer s returnable packaging, Seller will be responsible for cleaning and returning the returnable packaging. If returnable packaging is not available, Seller may use expendable packaging and Buyer will reimburse 3

6 Seller for the reasonable costs of expendable packaging. 1. Because packing and shipping requirements vary substantially among Buyers, Section 3.1 leaves to each Buyer the right to specify its own particular requirements. From Seller's standpoint, it is important to understand Buyer's packing and shipping requirements so that the costs can be reflected in Product pricing. 2. Following industry practice, Section 3.1 assumes that Buyer will provide returnable packaging for the Products. If returnable packaging is not available, Buyer will be responsible for either providing or paying for expendable packaging. Seller must reflect in its pricing the cost of cleaning and returning returnable packaging. 3.2 Delivery Schedules. Seller will deliver Products and Services in strict accordance with the Contract terms. Unless otherwise stated in the Contract, Products will be delivered F.C.A. Seller s dock (Incoterms 2010) and title will transfer upon receipt of the Products by the freight carrier. If Products are not ready for delivery in time to meet Buyer s delivery schedules, the party causing the delay will be responsible for additional costs of any resulting expedited or other special transportation. Buyer will also be responsible for additional costs of expedited or other special transportation that Buyer may require as a result of changes to its firm releases or delivery schedules or for other reasons not caused by Seller. The default delivery standard in Section 3.2 is F.C.A. Seller's dock, which means that Seller's obligation is to deliver the Products at Seller's dock, cleared for export (if applicable), to the carrier selected by Buyer. Further information about F.C.A. and other Incoterms is available from the International Chamber of Commerce at Section 3.2 establishes a fault-based standard for additional transportation costs. If Buyer changes its firm releases, it will be required to pay for any resulting expedited transportation, but not overtime or other increased costs incurred by Seller. See also, Section Inspection. Buyer may, upon reasonable advance notice to Seller, inspect production processes and Property and, subject to Seller s prior written approval, conduct testing at Seller s premises for the sole purpose of verifying Seller s performance under the Contract. Seller may restrict Buyer s access as necessary to protect proprietary information and may require appropriate indemnification and releases. Buyer is not required to inspect Products delivered or Services performed, and no inspection or failure to inspect will reduce or alter Seller s obligations under the Contract. Section 4 balances the need for Buyer to inspect production processes and its property with Seller's need to maintain the confidentiality of its and its other customers' proprietary information. Section 4 also clarifies that Buyer is not required to inspect Products upon receipt, and that Seller's obligations (such as under Section 7) are not affected by Buyer's inspection or failure to inspect. 5. Taxes. Unless otherwise stated in the Contract, the Contract price includes all applicable federal, state, provincial, and local taxes other than sales, value added, or similar turnover taxes or charges. Seller will separately invoice Buyer for any sales, value added, or similar turnover taxes or charges that Seller is required by law to pay or collect from Buyer. Section 5 divides the responsibility for taxes according to prevailing industry practice. The Contract price includes (and Seller must price for) all applicable taxes other than sales, value added, and similar taxes. 6. Payment. Payment terms are as set forth in the Contract. Seller will promptly submit correct and complete invoices or other agreed billing communications with appropriate supporting documentation and other information reasonably required by Buyer after delivery of Products and performance of Services, and Buyer may withhold payment until a correct and complete invoice or other required information is received and verified. Seller will accept payment by check or other cash equivalent, including electronic funds transfer. Buyer will pay Seller in the currency specified in the Contract or, if none is specified, in the currency of Seller s shipping or service location. Buyer may setoff or deduct from sums owed to Seller under the Contract those sums owed by Seller to Buyer and agreed to between the parties or upon final determination by dispute resolution. Unless Seller consents in writing, Buyer may not setoff or deduct amounts owed to Buyer by Seller s affiliates or others who are not parties to the Contract. 4

7 1. The payment terms, including currency, are left for the parties to specify in the Purchase Order or other Contract documents. Section 6 requires Seller to provide all required information to support payment by Buyer. 2. Once the required information is provided, Buyer may setoff or deduct only those amounts that are determined to be owed by Seller, either by agreement of the parties or through dispute resolution. Accordingly, contrary to current industry practice, setoff cannot be invoked in a vacuum and Buyer is not permitted to setoff amounts that are in dispute or have not been discussed with Seller. The right of setoff is further limited to amounts owed by Seller to Buyer, and does not extend to amounts owed by Seller's affiliates, or to Buyer s affiliates, or others who are not parties to the Contract. 7. Product Warranties. 7.1 Seller s Warranties. Unless otherwise specified in the Contract, the warranty period is the period for which the automobile manufacturer warrants the Products to end users. During the warranty period, Seller warrants to Buyer that the Products will be free from defects in workmanship and materials, and will conform to the specifications, drawings, samples, and performance requirements specifically incorporated in the Contract. Seller also warrants to Buyer that it will transfer to Buyer ownership and good title to Products delivered and Services provided, free of all liens, encumbrances, and rights of third parties (except those created by Buyer). Unless otherwise specifically stated in the Contract, Seller does not warrant the design of the Products or their fitness for any particular purpose. THE FOREGOING WARRANTIES ARE THE SOLE WARRANTIES AND ALL OTHER WARRANTIES OR REPRESENTATIONS, EXPRESS OR IMPLIED, ARISING BY LAW OR CUSTOM, INCLUDING IMPLIED WAR- RANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, ARE EXPRESSLY DISCLAIMED. Section 7.1 recognizes that an appropriate allocation of risk and responsibility for warranty claims often depends on the nature of the Product and Seller's role in its design and manufacture. It sets forth Seller's basic warranties concerning its Products and Services, including conformity to specifications and other Contract requirements and title to the Products and Services sold. Fitness and design warranties are excluded, but may be appropriate if Seller is design-responsible, in which case this section should be modified or a separate warranty agreement should be used. Buyers should make sure that the language in Section 7 passes through the warranty obligations that they have undertaken in contracts with their customers. Any product warranties apply for the same period as any corresponding consumer warranty. 7.2 Non-Conforming Products. Except as otherwise specifically provided in the Contract and subject to Sections 7.3, 8 and 13.2(c), Buyer s sole remedy for Products or Services that do not conform to the warranties in Section 7.1 will be to (1) reject the non-conforming Products or Services, (2) require Seller, at Seller s option and expense (including applicable shipping costs), to either repair or replace the non-conforming Products or Services, and/or (3) require Seller to implement at its expense containment, inspection, sorting, and other quality assurance procedures if Buyer reasonably determines (through statistical sampling or other quality assessments) that a substantial quantity of incoming Products does not conform to the warranties in Section 7.1. To the full extent possible, Buyer will provide Seller with access to any available warranty data related to the Products and any available fieldreturned Products. Buyer will also provide Seller with an opportunity to participate in any root cause analysis performed by Buyer concerning the Products. Section 7.2 generally limits remedies for warranty claims to rejection or repair or replacement of the non-conforming Products or Services. However, the Seller may also: (i) be responsible for Seller s recall expenses under Section 7.3; (ii) be required to indemnify Buyer for claims of third parties arising from the nonconforming parts under Section 8; and (iii) be subject to termination for material breaches under Section 13.2(c). In addition, Buyer may require quality assurance procedures if a substantial quantity of non-conforming Products are delivered. If different remedies are appropriate, they should be added in a separate warranty agreement. This is a departure from current industry terms and conditions, which typically impose no limit on remedies. 7.3 Recalls. This Section 7.3 applies to any voluntary or government-mandated offer by Buyer (or the vehicle manufacturer) to vehicle purchasers to remedy an alleged defect that affects motor vehicle safety or to address an alleged failure of a vehicle to comply with an applicable motor vehicle safety 5

8 standard or guideline (a Recall ). Except as otherwise stated in the Contract (including Section 13.2(e)), Seller will be liable for costs and damages resulting from a Recall only if the Recall results in whole or in part from a failure of the Products to conform to the warranties in Section 7.1 during the warranty period specified in the Contract. If Seller is liable for a Recall, the extent of Seller s liability will be negotiated on a case-by-case basis based on (1) a good faith allocation of responsibility for the Recall, (2) the reasonableness of the costs and damages incurred, (3) the quantity purchased and Contract price of the affected Products, and (4) other relevant factors. As a condition precedent to Seller s liability under this Section 7.3, Buyer must (i) notify Seller as soon as practicable after Buyer learns that a Recall being considered implicates the Products, (ii) provide Seller with available performance evaluations, accident reports, engineering investigations, and other data relating to the potential Recall, (iii) provide Seller a reasonable opportunity to participate in inquiries and discussions among Buyer, its customer, and governmental agencies regarding the need for and scope of the Recall, and (iv) consult with Seller about the most cost-effective method of modifying or replacing vehicle systems or component parts, including the Products, in order to remedy the alleged defect or non-compliance. Recalls are safety related warranty claims that involve the ultimate vehicle purchasers and often a governmental agency. Section 7.3 provides a general framework for dealing with Recalls that assigns responsibility for Recall costs based on the relative fault of the parties and other factors listed, and contemplates that the actual liability will be negotiated between the parties in good faith based on these factors. Fault is an important consideration in these situations, as often the Recall results not from a defective Product but from a defective or inadequate design that may or may not be the responsibility of Seller. Seller's responsibility for a Recall is limited to situations in which Products fail to conform to the warranties in Section 7.1 during the applicable warranty period. Finally, Section 7.3 requires that Seller be reasonably informed and reasonably involved in the Recall process as a condition of continuing liability for Recall costs. 8. Product Liability. 8.1 Indemnification. Seller will indemnify and defend Buyer against third-party claims or demands for injury or death to persons, property damage, economic loss, and any resulting damages, losses, costs, and expenses (including reasonable legal fees), regardless of whether the claim or demand arises under tort, contract, strict liability, or other legal theories, if and to the extent caused by Seller s defective design (if Seller has warranted design) or manufacture of Products or provision of Services, delivery of non-conforming Products or Services, or its negligent acts or omissions in its performance under the Contract. This Section 8 will not apply to the extent that the injury, loss, or damage results from (1) Buyer s specification of materials in the Products, (2) Buyer s design of the Products, (3) any alteration or improper repair, maintenance, handling, or installation of the Products by anyone other than Seller, or (4) the integration or interaction of the Products with systems or components not supplied by Seller. Product liability arises when a defective Product or Product design causes injury or damage to the public, and generally begins with a claim asserted against the vehicle manufacturer. Section 8 also allows Buyer to seek indemnity if a non-conforming part results in claims from third parties, such as, for example, a claim by an OEM against the Buyer for the OEM s costs of remedying non-conforming parts. Similar to the approach to Recalls in Section 7.3, Section 8.1 assigns responsibility for product liability based on fault. 8.2 Procedure. Buyer will notify Seller promptly after Buyer becomes aware of the basis for a claim under this Section 8. The parties will cooperate with each other to determine the root cause of a defect in or failure of the Products (and related systems and components) and an equitable allocation of responsibility among all responsible parties. Seller may examine and test all available Products and related systems and components that are subject to a third-party claim. Buyer will endeavor to include Seller in settlement discussions where indemnity has been or will be sought from Seller, and Buyer may not settle or compromise any third-party claim that gives rise to an indemnification claim without Seller s prior written consent, which will not be unreasonably withheld or delayed. Section 8.2 affords Seller the opportunity to participate in any settlement process, and approve any settlement, where Buyer seeks indemnification. 6

9 9. Compliance with Laws. Seller will comply with applicable laws, rules and regulations of the country where the Products are manufactured or the Services are performed. Seller will provide Buyer with material safety data sheets regarding the Products and, upon Buyer s request, will provide Buyer with other information reasonably required in order to comply with applicable laws. Section 9 is a typical provision that requires Seller to comply with applicable laws, but is limited to laws of the country where the Products are manufactured or Services performed. Section 9 also requires Seller to provide other relevant information needed to comply with applicable laws, such as material safety data sheets. 10. Intellectual Property Rights Buyer s Intellectual Property. Buyer does not transfer to Seller any patent, trade secret, trademark, service mark, copyright, mask work, or other intellectual property right ( Intellectual Property Right ) of Buyer in information, documents, or property that Buyer makes available to Seller under the Contract, other than the right to use Buyer s Intellectual Property Rights to produce and supply Products and Services to Buyer. Recognizing that Intellectual Property Rights represent a significant investment by many Buyers, Section 10.1 protects Buyer's Intellectual Property Rights except as needed to produce and supply Products and Services. See also Section Seller s Intellectual Property. Except as stated in this Section 10.2, Seller does not transfer to Buyer any Intellectual Property Right of Seller related to the Products or Services or incorporated in Buyer s Property, other than the right to incorporate Products purchased from Seller in vehicles and component parts and to sell those vehicles and component parts to the public. If the Contract is terminated by Seller or Buyer pursuant to Section 12.1 (other than by Seller for Buyer s Default), Seller grants to Buyer a non-exclusive right and license to use Seller s Intellectual Property Rights during the Contract term that would have applied had it not been earlier terminated under Section 12.1, and subject to Section 14, to obtain from alternate sources products and services similar to the Products and Services for use in vehicles or component parts covered by the terminated Contract. There will be no fee for this license if (1) Buyer terminates the Contract for Seller s Default, or (2) Seller terminates the Contract other than for Buyer s Default or pursuant to Section 16. Otherwise, the parties will negotiate a reasonable fee for use of Seller s Intellectual Property Rights. Recognizing that Intellectual Property Rights represent a significant investment by many Sellers, Section 10.2 protects Seller's Intellectual Property Rights except as needed to use the Products incorporating those rights. In addition, if Seller or Buyer terminates the Contract (other than for Buyer's Default), Buyer may also use the Intellectual Property Rights to obtain alternate sourced products, but only for the remainder of the Contract term. Buyer is required to pay a reasonable license fee for this use unless Buyer terminates for Seller's Default or Seller terminates other than for Buyer's Default or for excusable non-performance (see Section 16). See also Section Infringement. (a) Subject to Section 10.3(b), Seller will indemnify and defend Buyer and its customers against claims, liabilities, losses, damages, costs, and expenses, including reasonable legal fees, arising out of the actual or alleged infringement by the Products of a third-party Intellectual Property Right (1) in the United States, the European Union, or Japan, and (2) in another jurisdiction if Seller is aware of the actual or alleged infringement in that other jurisdiction at the time the Purchase Order is issued and fails to disclose it to Buyer within 10 days after accepting the Purchase Order. If a claim under this Section 10.3 results, or is likely to result, in an injunction or other order that would prevent Seller from supplying or Buyer from using Products for their intended purpose, Seller will at its option and expense either (i) secure a license of the Intellectual Property Right that permits Seller to continue supplying the Products to Buyer, or (ii) modify the Products so that they become non-infringing, so long as the modification does not materially alter the operation or performance of the Products, or (iii) replace the Products with non-infringing but practically equivalent Products. (b) Seller will have no liability under this Section 10.3 unless Buyer provides Seller with full information, cooperation, and assistance regarding, and authority to defend, a claim covered by this Section Seller will have no liability under this Section 10.3 if and to the extent that a claim of infringement is based on (1) a Product modification made by Buyer or a third party, (2) a Product modification made by Seller at Buyer s request, (3) use or interconnection by Buyer of the Product in 7

10 combination with other products not made or sourced by Seller, or (4) Products made to specifications not provided by Seller. 1. Section 10.3(a) requires Seller to indemnify Buyer for infringement if the Products infringe third-party Intellectual Property Rights in the major automotive markets (the United States, the European Union, and Japan), recognizing that many Sellers lack the resources to search for third-party Intellectual Property Rights worldwide. Section 10.3(a) also requires Seller to take appropriate action to enable Buyer to use the Products for their intended purpose, once a claim covered by Section 10.3(a) appears likely to limit Buyer's ability to use the Products as intended. 2. Section 10.3(b) imposes two conditions to Seller's liability. First, it requires that Seller be afforded the opportunity to control defense of the third-party claim. Second, it excludes liability in the circumstances listed, of which the most significant is to exclude Products made to Buyer's specifications. 11. Property Buyer s Property. (a) Buyer will own the tooling, jigs, dies, gauges, fixtures, molds, patterns, supplies, materials, and other equipment and property used by Seller to manufacture, store, and transport Products or provide Services ( Property ) if (1) the Property is so designated in the Contract, or (2) Buyer or its customer has provided or paid for the Property ( Buyer s Property ). Seller will assign to Buyer contract rights or claims in which Seller has an interest with respect to Buyer s Property and execute bills of sale, financing statements, or other documents reasonably requested by Buyer to evidence its or its customer s ownership of Buyer s Property. Seller will indemnify and defend Buyer against claims or liens adverse to Buyer s or its customer s ownership of Buyer s Property except those that result from the acts or omissions of Buyer or its customer. Seller will hold Buyer s Property on a bailment basis and will be responsible for loss or damage to Buyer s Property while in its possession or control. To the extent permitted by law, Seller waives any lien or similar right it may have with respect to Buyer s Property. Buyer will be responsible for personal property taxes assessed against Buyer s Property. (b) Seller will (1) at its expense maintain Buyer s Property in good condition and repair, normal wear and tear excepted, throughout the useful life of Buyer s Property, (2) use Buyer s Property only for the manufacture, storage, and transport of Products for Buyer unless Buyer otherwise approves in writing, (3) at Buyer s request and expense, mark Buyer s Property as belonging to Buyer or its customer, and (4) not remove Buyer s Property (other than shipping containers and the like) from Seller s premises without Buyer s written approval. All replacement parts, additions, improvements, and accessories to Buyer s Property will become part of Buyer s Property unless they can be removed without damaging Buyer s Property. (c) Buyer will pay for Buyer s Property that it is required to purchase at the amount specified in the Contract or, if no amount is specified in the Contract, at (1) Seller s actual cost of the Buyer s Property, if manufactured by a third party, or (2) Seller s actual cost of purchased materials, components, and services plus Seller s actual cost of labor and overhead allocable to the Buyer s Property, if manufactured by Seller. Unless otherwise stated in the Contract, final payment for Buyer s Property is due (i) on the vehicle manufacturer s PPAP (Production Part Approval Process) approval date, or (ii) within 90 days after the Property is tendered for PPAP approval if no action has then been taken on the request for PPAP approval. (d) Subject to Section 11.1(e), Seller will immediately release to Buyer upon request, and Buyer may retake immediate possession of, Buyer s Property and other property of Buyer or its customers at any time, with or without cause and without payment of any kind unless otherwise provided in the Contract. Seller will release the requested Property and other property to Buyer F.C.A. Seller s plant (Incoterms 2010), properly packed and marked in accordance with the requirements of Buyer s carrier. If the release or recovery of Buyer s Property or other property renders Seller unable to produce a Product, the release or recovery will be deemed a termination of the Contract with respect to that Product pursuant to Section 12 or 13, as applicable. (e) Seller s obligation to release and allow Buyer possession of Buyer s Property under Section 11.1(d) shall be conditioned on payment by Buyer of all amounts owed for Buyer s Property under Section 11.1(c), except that if Buyer and Seller dispute the amount owed under Section 11.1(c), Seller shall release and allow Buyer possession upon payment by Buyer of the undisputed portion of the amount claimed by Seller to be owed. Seller's relinquishment 8

11 of possession shall not prejudice any claim or right to payment of Seller for the disputed amounts. 1. Section 11.1 covers tooling and other property of Buyer that is placed in Seller's custody in order to perform the Contract. It clarifies that Buyer's Property includes only Property that Buyer has provided or paid for. It does not include Property ordered from or through Seller unless and until it has been paid for. See also Sections 11.1 (d) and (e) regarding the relationship between payment and Buyer s right in the property. 2. Section 11.1(b) requires that Seller properly maintain Buyer's Property and return it to Buyer upon request. 3. Section 11.1(c) sets the price established in the Contract as the purchase price for Property that has been purchased by Seller for resale to Buyer. Only if the Contract does not establish a fixed price will Seller's acquisition costs become relevant. Note that Seller's acquisition costs do not include profit, so it is incumbent on a Seller wishing to recover a profit on tooling to fix a price in the Contract that includes an element of profit. Section 11.1(c) also sets forth the default payment provisions, which may be modified in the Purchase Order. 4. Section 11.1(d) and (e) together allow the Buyer to obtain possession of its property once it has paid for it, except that if there is a dispute about what is owed, Buyer can obtain possession by paying the undisputed amount, with the dispute to be resolved later Seller s Property. Seller will own all Property that is not Buyer s Property ( Seller s Property ). Seller will at its expense furnish, maintain in good condition, and replace when necessary Seller s Property needed to perform the Contract. While a Contract for Products remains in effect, Buyer may purchase Seller s Property used exclusively to produce those Products and not needed by Seller to produce Products or products for other customers, for a purchase price equal to the greater of fair market value or Seller s unamortized acquisition cost. Section 11.2 affords Buyer the opportunity to purchase Property (as defined) owned by Seller, so long as Seller no longer needs that Property. 12. Term and Termination Generally. Each Contract will remain in effect for the term specified in the Contract (or until terminated if no term is specified) unless earlier terminated by either party (1) by reasonable (but not less than 60 days) notice to the other party, or (2) pursuant to Section 13 or 16. Upon termination of a Contract, Seller will assist Buyer in locating an alternative source for the Products and Services and in moving production to the alternate source selected by Buyer. 1. Section 12.1 provides a general right for either party to terminate without cause, in addition to the termination rights granted in Sections 13 (Default) and 16 (excusable non-performance). This right may be modified by the Purchase Order or by use of a long-term agreement. 2. Once a Contract has been terminated early, Sections 12.2, 12.3 describe various rights of the parties upon termination, depending on whether it is a long term or short term contract. Section 12.4 addresses these rights in contracts for Buyer s Property. Note, however, that these rights apply only to an early termination they do not apply if the Contract simply expires and is not renewed. Since Purchase Orders are typically issued for a one-year term, the parties are vulnerable at the end of each one-year term if the Purchase Order is not renewed and accepted. Section 12.2 treats certain Contracts as long term contracts even if the Purchase Order is issued for 1 year or less. However, a Buyer wishing to protect pricing and other favorable terms or a Seller wishing to best protect its investment in research and development, capital equipment, etc. should consider establishing an express long-term Contract which expressly recognizes that the parties supply relationship will continue for life of the program, or some other period longer than the term of a particular purchase Long-Term Contracts. If Buyer terminates a Contract issued for a term of more than one year ( Long-Term Contract ) before the end of its specified term (other than for Seller s Default), Buyer will (1) purchase completed Products at the Contract price and work-in-process and raw materials at Seller s actual cost, in each case to the extent reasonably necessary to satisfy Buyer s firm releases, and (2) reimburse Seller for reasonable costs actually incurred by Seller as a result of the early termination, including the cost to store the items to be purchased and relocate production to an alternate source and the cost of unreimbursed and unamortized research and development costs, engineering costs, capital equipment, Seller s Property, and supplies that are unique to the Products. If Seller terminates a Long- Term Contract before the end of its specified term 9

12 (other than for Buyer s Default), (i) Seller will reimburse Buyer for reasonable costs actually incurred by Buyer to relocate production to an alternate source, and (ii) Buyer may purchase completed Products at the Contract price and workin-process and raw materials at Seller s actual cost. For purpose of this provision, if Buyer and Seller have agreed in writing to pricing for more than one year or have agreed in writing that the Products or Services will be supplied for the life of the program, the Contract shall be a Long-Term Contract, even if a particular Purchase Order expires in one-year or less. 1. When a Long-Term Contract is terminated by Buyer (other than for Seller's Default), Section 12.2 requires Buyer, among other things, to reimburse Seller for unreimbursed and unamortized research and development costs, engineering costs, capital equipment, Seller's Property, and supplies that are unique to the Products. A departure from most current industry terms and conditions, this provision is intended to protect Seller's investment in those items that Seller reasonably expects to recover over the life of the Long-Term Contract. Note that this provision applies only to Long-Term Contracts and is not repeated in Section Sections 12.2 (and 12.3) also require the terminating Buyer to purchase materials and work in progress, limited to the quantities reasonably necessary to satisfy firm releases. Reasonably necessary is not always limited to the material or work in progress that will be specifically incorporated in the firm releases. If lead time requirements or other commercial reasons make it reasonably necessary for Supplier to purchase more materials than the amount to be used for the firm releases, then the Buyer must purchase those reasonable amounts. 2. The final sentence of Section 12.2 addresses a common arrangement in the industry which can create confusion and conflict regarding the term and related rights. Buyers and Sellers frequently agree to multi-year pricing, but do not expressly address whether that means that the supply relationship will continue beyond the term of a one year or shorter purchase order. The final sentence reflects the drafters belief that in these situations the long term pricing usually reflects a commitment to a long term supply relationship and should be considered a long term contract in determining the parties rights and obligations on termination If that does not reflect the parties intentions, they should expressly say so in the multi-year pricing agreement or purchase order. 3. When a Long-Term Contract is terminated by Seller (other than for Buyer's Default), Section 12.2 requires Seller to reimburse Buyer for the cost of relocating production, as well as allowing Buyer at its option to purchase completed Products, work-in-process, and raw materials Short-Term Contracts. If Buyer terminates a Contract issued without a definite term or for a term of one year or less ( Short-Term Contract ) before the end of its specified term (other than for Seller s Default), Buyer will purchase completed Products at the Contract price and work-in-process and raw materials at Seller s actual cost, in each case to the extent reasonably necessary to satisfy Buyer s firm releases. If Seller terminates a Short-Term Contract issued without a definite term or before the end of its specified term (other than for Buyer s Default), Buyer may purchase completed Products at the Contract price and work-in-process and raw materials at Seller s actual cost. For purpose of this provision, a Contract that is a Long Term Contract under the final sentence of Section 12.2 shall not be a Short- Term Contract. The rights upon termination of a Short-Term Contract are more limited. Section 12.3 requires Buyer to purchase completed Products, work-in-process, and raw materials if Buyer terminates (other than for Seller's Default), and provides Buyer the option to purchase those items if Seller terminates (other than for Buyer's Default) Property Orders. If Buyer terminates a Contract for Buyer s Property before it is fully performed (other than for Seller s Default), Buyer will (1) purchase the completed Buyer s Property at the Contract price and work-in-process and raw materials related to the uncompleted work at Seller s actual cost, and (2) reimburse Seller for reasonable costs actually incurred by Seller as a result of the early termination, including the cost to store the items to be purchased and to relocate the work to an alternate source. Section 12.4 provides rights similar to those provided for termination of a Long-Term Contract if Buyer terminates a Contact to supply tooling or other Buyer's Property. 13. Default Events of Default. Time is of the essence and, subject to Section 16, either party will be in Default under the Contract if it (1) fails to perform any obligation under the Contract and, if the non- 10